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Cheesecake in Expansion Mode

In order to boost its national presence, The Cheesecake Factory Inc. (CAKE) recently opened its new outlet at Quaker Bridge Mall situated in Lawrence Township, New Jersey. The company plans to open around seven to eight outlets in the U.S. in 2012.

Quaker Bridge Mall is one of the oldest and largest shopping centers of New Jersey. Strategically located in proximity to interstate highways and major roadways, the mall exhibits major American retail giants. The new Cheesecake restaurant accommodates around 293 diners and is the eighth outlet of the company in the New Jersey area. The restaurant includes an 8,644 square foot dining room and a 1,517 square foot patio.

We believe the opening of the new restaurant in New Jersey, one of the most densely populated and wealthiest U.S. states with respect to household income, will immensely benefit the company in driving traffic.

The restaurant industry of New Jersey acts as a major catalyst of its economic development. The restaurant industry of the state is projected to generate around $13.6 billion in revenue in 2012. This factor has also caught the attention of one of the company’s close peers – Cosi Inc. (COSI) – which recently opened its fourth outlet in Hackensack region of New Jersey.

The company is on a growth itinerary on both national and international fronts. Of the planned new outlets in U.S., two are slated to open in November 2012 in two premier shopping malls. One restaurant will be positioned in the Potomac Mills in Washington D.C and the other in Baybrook Mall in Texas.

On the international front, Cheesecake Factory recently opened an outlet at The Dubai Mall, which marked its overseas debut. The company, in collaboration with Alshaya group of companies, expects to open around 22 Cheesecake Factory restaurants over the next five years in five Middle Eastern countries –– United Arab Emirates, Kuwait, Bahrain, Qatar and the Kingdom of Saudi Arabia. The expansion plans also include the other markets of the Middle East and North Africa, Central and Eastern Europe, Russia and Turkey.

However, the company should be wary of its competitors, who are also poised to spread their footprints in major domestic and international markets. Darden Restaurants Inc. (DRI) has planned to open around 60 restaurants under its three major brands in Bahrain, Egypt, Kuwait, Lebanon, Qatar, Saudi Arabia and United Arab Emirates by 2015. One of the major rivals of Cheesecake, Yum! Brands Inc. (YUM) is also set to open 1700 new restaurants worldwide this year.

Cheesecake Factory operates upscale, full-service, casual dining restaurants under The Cheesecake Factory, Grand Lux Cafe and the RockSugar Pan Asian Kitchen names. We presently have a long-term Neutral recommendation on the Cheesecake Factory. However, it carries a Zacks #4 Rank that translates into a short-term Sell rating.